The Landfill Allowance Trading Scheme (LATS) is the government's key measure to meet the demands of the
European Landfill Directive in England, and began on April 1, 2005.
Tying in with the targets of the Landfill Directive, the LATS system sees progressively tighter
restrictions on the amount of biodegradable municipal waste - defined as paper, food and garden waste
- that disposal authorities can landfill.
 Councils will be fined £150 for every tonne they
landfill beyond the limit set by the allowances they hold.
The LATS system works by councils being set allowances on the amount of biodegradable material they
can send to landfill. In two-tier areas, this refers to waste disposal authorities (county councils) only.
These allowances are tradable, so that high landfilling authorities can buy more allowances if they expect
to landfill more than the allowances they hold. Similarly, authorities with low landfill rates can sell
their surplus allowances.
Councils will then be fined £150 for every tonne they landfill beyond the limit set by the allowances they
hold.
In this report, letsrecycle.com looks in detail at how the English tradable allowance system
is to operate.
1. Targets and allocations
LATS was given a legal footing in Parliament with the Waste and Emissions Trading (WET) Act 2003, and the scheme began
on April 1, 2005.
Successfully used in the USA to reduce sulphur dioxide emissions from power stations, the tradable
allowance system was favoured by two thirds of local authorities in a 1999 consultation. The system
was thought to have low compliance and administration costs, and would see wealth remaining in the
local authority system.
Landfill allowances will be allocated by the government so that nationally, the UK reaches
the targets set by the Landfill Directive for reducing the amount of biodegradable municipal
waste going to landfill. These Directive targets are to reduce landfilling to:
- 75% of 1995 levels by 2010;
- 50% of 1995 levels by 2013;
- 35% of 1995 levels by 2020.
The landfill allowances given to councils are
therefore progressively fewer in number each year in
order to cut the overall national rate in line with the Landfill Directive requirements.
The government has set English WDAs allowances for the period up to the year 2020 to provide certainty for
long-term planning. Defra has published a list of allocations for all 121 English disposal authorities, which can be
downloaded from the
Defra website. These provisional allocations could be subject to revision before final allocations are
published.
The government has said the total amount of allocations going out to WDAs will mean a diversion in the five years
up to the first Landfill Directive target year (2010) of 10%, 15%, 20%, 25% and then 30%. This initial allocation
period sees a "back-end loading" of the trajectory, with large increases in diversion
in 2007/08 and 2008/09, which the government intends to help councils needing time to bring waste management facilities
online. The government said it would save £125 million over four years compared to a straight-line trajectory.
Under LATS, the total amount of municipal waste going to landfill in England should drop from about 15.2 million tonnes each year
to 11.2 million tonnes by 2010. If the trading scheme is a long-term success, this should fall to just 5.2
million tonnes in the year 2020.
Allowances account only for biodegradable material in municipal waste - since the Landfill Directive
only covers biodegradable municipal waste. In the UK, about 68% of municipal waste is biodegradable
and will be counted under LATS, although each disposal authority has set ots exact biodegrdable proportion
to take local, individual circumstances into account.
Scottish local authorities are also using a landfill allowance trading system, with trading allowed from 2008,
while in Wales, councils started a landfill allowances scheme in October 2004,
but Welsh landfill allowances are not tradable. In Northern Ireland, there is to be no trading of landfill allowances,
however councils there can transfer unused allowances to other councils.
While penalties for missing targets are £200 per tonne in Northern Ireland, Scotland has set penalties of £10 per tonne
in 2005/06, £25 per tonne in 2006/07, £50 per tonne in 2008/09 and £150 per tonne from 2009 onwards.
2. Trading allowances
Local authorities are able to trade their landfill allowances. Therefore, a local authority
needing to landfill more than its allocation of allowances permits can therefore
buy extra allowances from local authorities who landfill less than their allocation.
Authorities do not have to trade allowances. If they want to avoid the complication of trading,
they are able to comply with the regulations so long as they do not landfill more than the total
amount of allowances they hold.
Only Waste Disposal Authorities (WDAs) are able to use landfill allowances - this means
environmental pressure groups are unable to buy up allowances in order to 'retire' them and thus
force lower landfill rates.
A local authority
needing to landfill more than its allocation of allowances permits can
buy extra allowances from local authorities who landfill less than their allocation.
Monitoring of the trading system will be carried out by the Environment Agency in England and Wales,
the Scottish Environment Protection Agency in Scotland and the Environment and Heritage Service in
Northern Ireland.
Trading of landfill allowances is being facilitated by Defra's electronic
LATS Register. This is an online system - only available to nominated officers within disposal authorities - which acts almost like
a bank account. Each disposal authority has an account showing how many allowances it has available.
Once two WDAs have agreed to trade allowances, the selling authority must enter this trade on the LATS Register. Allowances
only exist in electronic form, and do not exist in paper form. The LATS Register is maintained by the regulator,
the Environment Agency.
The Local Government Association also has a bulletin board available for authorities to discuss LATS trading.
3. Banking and Borrowing
Local authorities will be able to effectively trade with themselves, but across time. WDAs
will be able to "bank" unused allowances in one year to use in a future year, or "borrow" allowances from
future years where shortages exist.
It is thought this would see a more even distribution of allowances across time that would have a
stabilising affect on allowance prices, but neither "banking" nor "borrowing" would increase the number
of allowances available in the system, and thus would have no effect on the overall amount going to landfill.
Defra will only allow 5% of landfill allowances
to be borrowed from future years as a safeguard measure for
Landfill Directive target years.
The government has said that WDAs will be able to bank as many allowances as they like - perhaps as some
insurance against the possibility of plant failures or other difficulties in years ahead. But, Defra warned
it will only allow 5% of landfill allowances to be borrowed from future years as a safeguard measure for
Landfill Directive target years.
Trading between years will not be permitted in the years in which targets have been set by the European
Landfill Directive (2010, 2013, 2020), to ensure that the UK meets its demands. This would mean that allowances
unused at the end of 2009, 2012 and 2019 would become worthless.
Contracts in future allowances might also become a reality in the landfill allowance trading system.
If one local authority wanted to build a recycling plant, for example, it might go to a high landfill authority
and negotiate funds to help finance the recycling plant in return for supplying landfill allowances to the high
landfilling authority over a number of years. This way of operating would reduce the risk of sudden price rises
or falls in the run-up to the beginning of target years, as it would cut out the possibility of an oversupply
or undersupply of allowances.
There will be a review of the landfill allowance trading system in 2007, which Defra has so far said
will be an "operational review", but has not yet made a decision on the form of the review - it may or
may not involve a consultation - but it would aim to iron out any wrinkles and improve the working of the system.
4. Allowance prices
The exact value at which allowances will change hands is not yet known. Initially, prices are likely to
reflect the extra amount a selling authority needs to spend to recover the amount of waste in question rather
than landfilling it. Prices could also reflect the potential fine Defra would hand out if councils landfill
more than the allowances they hold. This fine has been set at £150 per tonne by Defra.
The government has said that allowance prices will be kept confidential, but that to aid development of the market,
the nominated WDA users of the LATS Register will be able to view a list of anonymous historic trades displaying
the year the trade relates to, the number of allowances sold and the value of the trade.
Some councils have suggested prices will reach in the order of £100 per tonne. However, with a
tradable system it is market forces of supply and demand that will determine how prices shape up across the
country.
Initial work by the Local Government Association has suggested that the price of landfill allowances is
likely to remain low in the first few years of LATS. But, from 2008/09 onwards, the availability of landfill allowances
could start to become scarce, with prices rising as a result.
From the 90 out of the 121 English waste disposal authorities that provided data to the LGA, it said that
"in 2005/06, supply of allowances will outstrip demand by a significant amount, perhaps as many as 1 million allowances".
The Association said that its data showed that 28 authorities need to buy allowances, while 62 should be in a position
to sell in 2005/06.
But, the Local Government Association has warned that current data implies that prices for allowances could be high
from 2008/09 onwards, with a "serious deficit" of allowances potentially arising after 2009/10.
This information was based on only 75% of disposal authorities, however, and the LGA stressed that only with all
of the disposal authorities submitting their LATS needs would a clear picture of the market be ascertained.
The market for landfill allowances is likely to be complicated by the banking and borrowing of allowances. If
authorities bank their allowances to guard against future risk, this would reduce the supply of allowances and push
up the price in any current year.
While authorities are not allowed to bank through Landfill Directive target years (2010, 2013, 2020), the banking
of allowances early on for use in subsequent years could even out availability, relieving some pressure on allowance
prices later on.
5. Non-compliance
Authorities that fail to obtain sufficient landfill allowances for the amount of waste they landfill are
likely to face stiff penalties. Defra has said that the LATS will not operate without the threat of financial penalties,
and has said that it will fine WDAs £150 for every tonne landfilled above the total amount of allowances they hold.
And, the government has reserved the right to pass on any European fine imposed on the UK for missing the Landfill
Directive targets onto the local authorities or devolved administrations responsible for the UK missing its targets.
This could mean that failing councils would be responsible for their share of fines reaching £180 million a year,
or £500,000 a day, until the Directive's demands are met.
6. Businesses
The government has said the only way the business sector will be affected by the landfill allowance system will be
that landfill operators will need to record the amount of municipal waste they accept and which waste disposal
authority it has come from. Essentially, this would be a little more information changing hands in top of that
which already occurs when waste is sent to landfill.
This "minor administrative task" would cost an additional 5 pence per tonne, the government believes, adding up
to a total of around £150,000 each year across the whole of the UK.
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